patrick.net

I see concepts like “Saving for a Rainy Day” and “Living within your means” making a strong come back soon.

What country do you live in Lurker?

@Peter P,

Yeah, FOREX and what they call CFD (Contract For Difference) and as far as I can tell that basically means that you never actually take possession of the shares. Be that in certificate form or "street name". This way they can mimic the stock's price movements without all the luggage like proxy votes, ACAT's (account tranfers) etc. Kind of like Linden $'s only you play for keeps. They are giving the NYSE and FTC absolute fits!

Is it similar to peripheral betting?

It seems to me like a good idea - lock in the low interest rate now, and assume that inflation will make the mortgage more affordable later. And maybe he’ll have a second income too.

Problem is, the interest rate for a 10/30 I/O to FRM is not that different from a 30y FRM. The "how-much-a-month" difference is small. Worse yet, you are basically deferring any principal payment for 10 years, so the increase in the monthly payment will be substantial in 10 years, and there will have been no equity buildup (unless prices continue to skyrocket!). Yes, you're friend is hoping for either significant inflation or a significant wage increase by then.

http://sfbay.craigslist.org/pen/rfs/309410152.html

I believe this is one of the D.R. Horton models on the El Cam.

Peter P,

Exactly. It's interesting to note that the lottery in America started in Harlem and used the last four digits of the close for the day on the DJIA. It was perfect. They didn't even have to go to the expense and hassle of a drawing and then (quietly) circulating the numbers. There was a paperboy on every street corner.

Yep, Option Volatility & Pricing is a must-read.

I’ll consider myself well-versed in option theory when I can derive the B-S model myself.

I did that in a class at Stanford. That would not help your trading at all. The B-S model was a relatively simple/elegant set of partial differential equations. And they are only that.

eburbed,

Nowhere is more prone to the "Matrix collapse" than the PacNW! Everyone here is so convinced that anything you could possibly want (except sunshine) is within a few hours drive! So it's well worth the sacrifice.

This theory works well until you have to go to a wedding/funeral or stark raving mad!

Problem is, the interest rate for a 10/30 I/O to FRM is not that different from a 30y FRM. The “how-much-a-month” difference is small. Worse yet, you are basically deferring any principal payment for 10 years, so the increase in the monthly payment will be substantial in 10 years, and there will have been no equity buildup (unless prices continue to skyrocket!). Yes, you’re friend is hoping for either significant inflation or a significant wage increase by then.

Actually that was the whole point - to defer principal payment for 10 years so that he could afford to buy ramen. It had nothing to do with HMAMonth.

The bet is that inflation will soar in the next few years, and subsequently his wage will go up. Assuming just 4% inflation a year, his income in 10 years will be 42% greater than it is today.

I'm of the growing opinion too that inflation will soar.

I don't see how we will pay all the debts to China without it.

This theory works well until you have to go to a wedding/funeral or stark raving mad!

See this doesn't happen in California. It's so big that most weddings/funerals happen in state. Most of my Cali native friends have never spent more than 8 weeks total anywhere outside of California in their 30 years of life.

And when they do go, all they do is complain about how hot/humid/cold it is.

eburbed,

Seems your friend could use a "3rd leg" to his stool? Wage inflation (alone?) may not be the ticket if the home itself has flat lined or depreciated.

As skibum points out the difference in payments isn't all that substantial and when he should be at a point where he "should" begin chipping away at the principal he's in fact just getting started.

The bet is that inflation will soar in the next few years, and subsequently his wage will go up. Assuming just 4% inflation a year, his income in 10 years will be 42% greater than it is today.

That's an awfully big ante to put up for a bet as risky as that! I personally do not have the cajones to be willing to potentially sacrifice my financial future in hopes for continued wage inflation. That 4% increase per year doesn't mean one specific company's engineer payout increases by 4%/year. There may be years of flat incomes, layoffs, recession, followed by boom times. We are now clearly in a mini-boom/euphoria (unfounded, IMO) in Silly Valley with respect to tech, and betting on continued wage inflation from now on up is risky.

Besides, I'm too lazy to do the math, but what's the increase at 10 years in monthly payments once a 10/30 I/O flips to say, 6.5% fully amortizing over only 20 years vs. the prior interest only payments?

Also, wage inflation applies to the whole economy. An individual can well become obsolette and be making ZILCH in the future.

"It's so big that most weddings/funerals happen within state."

Pffft. Silly me. That or "former" friends and relatives that do not reside in Cali become dead to them. They just don't exist.

Also, wage inflation applies to the whole economy. An individual can well become obsolette and be making ZILCH in the future.

Peter P,

Once again, you've said the same thing I've said, only much more succintly.

New thread: New MBS Liability Law: Good or Bad Idea?

Eburbed,
Some folks think CIDs (common interest developments) are actually a model for a totalitarian state. No separation of powers as the board is judge, jury and executioner.
http://www.ahrc.com/new/index.php/src/news/sub/article/action/ShowMedia/id/1703
The Wikipedia also has some good commentary and critiques of CIDs.

Goober,
As always, you come up with some gems. I have to admit the most radical "book" I have read recently is the "Humanure Handbook". Modern sewers are an amazing invention; take perfectly good &^%@! and mix it with heavy metals and other toxins. Look, a nice field, lets spray it with some toxic sludge. Hmmm.... somehow I think Peter P will not include a sawdust or composting toilet in his dream bathroom (maybe an incinerating one, though?)

You could tell the grout between the tiles hadn’t fully hardened yet too!

Ok, I give up. I looked and couldn't tell. What's the sign?

Some folks think CIDs (common interest developments) are actually a model for a totalitarian state. No separation of powers as the board is judge, jury and executioner.

Haven't you heard? Freedom is slavery and vice versa. :)

Seems your friend could use a “3rd leg” to his stool? Wage inflation (alone?) may not be the ticket if the home itself has flat lined or depreciated.

Well he did put down 20%... so I think he's ok.

@eburbed,

Newly laid tile will still have a "glazed" appearance. No matter how hard you try to sponge it off there's a chalky coat that takes time to wear off. If you look carefully there's light coming in through the windows but no reflection on the tile floor.

bill gross at pimco has written a great piece about the subprime mortgage housing market and it's possible repurcussions
http://tinyurl.com/2zfsv6

Why do you even live in California eburbed? You really seem to think that it is a terrible place, why do you stay?

skibum, thanks for the NYT article. That is the kind of hard data I was looking for.

Ms Lisa,

Thanks for the insider's story. Very interesting, and it's too bad honest appraisers are getting the shaft as a result of the dishonest ones.

Recently, I’ve been wondering just how far into the economy this bubble burst is going to reach. ..in real, everyday Joe terms. And this group of bloggers seem just the right people to ask.

One good thing I've noticed, the waiting time at Black Angus seems to be getting better on the weekends.

Malcolm,

What about Outback Steakhouse. I don't like the concept or the food, but everytime I go there with my boyfriend, it's filled up the gills.